Discuss whether or not the below listed actions are tax avoidance or tax evasion. Then, discuss the ethical implications of employing each of these in a tax return.
- Keeping a log of business expenses
- Ignoring earnings from a lawn mowing business
- Not reporting interest earned on a savings account
- Keeping a log of contributions to a charity
- Not reporting tips
- Claiming your dependents as tax deductions
Please response each posted below. # 1 to 3 .
1. From : Daniel Gervais posted Apr 26, 2018 8:53 PM
- Keeping a log of business expenses (Avoidance)
Business expenses are allowable deductions for AGI. As a result they are an excellent strategy for tax avoidance and help the individual run a successful, profitable business. That being said, it’s assumed the expenses are legitimate and aren’t inflated, or false. Doing so would make this act tax evasion.
- Ignoring earnings from a lawn mowing business (Evasion)
A lawn mowing business, even if it’s small, is a moneymaking venture. Therefore, earnings from this activity must be reported as taxable income. However, it would be wise for the business owner to employ the strategy mentioned above, in an ethical way, to reduce their tax liability.
- Not reporting interest earned on a savings account (Evasion)
Interest earned on a savings account is taxable, so failing to reporting would be evasion. If the individual can afford to not touch the money in the savings account for an extended period of time, they would want to consider municipal bonds as an alternative, as the interest earned from those are tax exempt!
- Keeping a log of contributions to a charity (Avoidance)
Similar to item #1, this is a wise tax avoidance strategy. Technical difference is charitable deductions are adjustments from AGI. Personally, I find this to be excellent way to redirect some of your otherwise tax liability to local charitable (or national if you prefer) efforts. The deduction helps fund your efforts!
- Not reporting tips (Evasion)
Tips are part of an individual’s moneymaking activity and is income which needs to be reported. As a result, not reporting drastically (in some cases) the individual’s income and allows them to evade their true tax liability.
- Claiming your dependents as tax deductions (Avoidance)
The government understands dependents come with significant financial responsibility. As a result, the tax law helps subsidize this responsibility by reducing your tax payer proportional to the number of dependents in your care. Claiming dependents is an excellent legal and ethical strategy to use the tax law in your favor!
2 From: Latosha Graham posted Apr 27, 2018 9:29 AM
1. Avoidance. Keeping this business expense log is a good necessary thing to do. There are some things that can be deducted on taxes, but if you are audited, you have to have record of these things.
2. Evasion. It is illegal to not claim earnings from any business adventure. It can’t be taxed properly if it isn’t taxed which means you would basically be stealing from the government.
3. Evasion. This particular situation can be looked at from different angles. You don’t have to claim it if you don’t have enough interest per year, but there is a limit. If you pass the limit, it could be considered stealing from the government.
4. Avoidance. You can deduct what you donate to charities.
5. Evasion. The employer who has you working off tips to make sure that you can earn a minimum wage must compensate your wages. By not correctly claiming tips, you are stealing from the government.
6. Avoidance. When you claim your dependents it helps you get the taxes you paid on them.
3. From: Alexandra Moraitis posted Apr 28, 2018 1:22 AM
The IRS or state tax code has plenty of methods which are approved to help reduce your tax liability. Tax avoidance is claiming all your permissible deductions and credits.Most people pay more state and federal income tax because they either misunderstood tax or don’t keep good records. So the federal and state tax regulations provide deductions, credits and adjustment to your income to help lower your tax.
Basically tax evasion means avoiding to pay your taxes. This occurs when the taxpayer either evades assessment ot evades payment. To be convicted of tax evasion you have to be proven willfully acted to evade assessment or payment of your taxes. This is a felony, by the action of an individual who avoided paying taxes.
- Keeping a log of business expenses-tax avoidance By keeping a expense log.
- Ignoring earnings from a lawn mowing business-tax evasion The earnings are not being claimed.
- Not reporting interest earned on a savings account-tax evasion After a certain point, a limit it would be considered illegal.
- Keeping a log of contributions to a charity-tax avoidance Again by keeping a log plus you can deduct this.
- Not reporting tips-tax evasion This would be a minimum wage with compensate your wages.
- Claiming your dependents as tax deductions-tax avoidance Doing it correctly, you are claiming your dependents which can help with taxes.